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Consumer Bankruptcy Law and Practice: 18.7.10 Creditor’s Plan of Reorganization

The Bankruptcy Code grants a chapter 11 debtor a time period of 120 days from the entry of the order for relief during which the debtor has the exclusive right to file a plan of reorganization.691 If the debtor does not file a plan within the 120-day period or if a plan is not confirmed within a 180-day time period following the entry of the order for relief, any party in interest may propose a plan of reorganization.692 This time limit is intended to give the debtor a reasonable period of time

Consumer Bankruptcy Law and Practice: 18.7.11 The Effect of Plan Confirmation

After the chapter 11 plan is confirmed, the debtor must begin making the payments and other distributions required by the plan and carry out any other required provisions. Payments made under the plan may be funded by the operation of the debtor’s business or through the liquidation or recovery of assets. The debtor-in-possession, or a trustee if one has been appointed, must provide periodic reports on the status of implementation of the plan.704

Consumer Bankruptcy Law and Practice: 18.7.15.1 Generally

Companies facing pressure to restructure in order to remain competitive may turn to chapter 11 filings as a means of doing so. A chapter 11 filing enables a struggling company to shed less profitable operations and burdensome obligations. This not only affects the company’s suppliers, customers, secondary lenders, tort claimants, and so forth, but it can be devastating to the livelihoods of its employees and the economic vitality of its local community.

Consumer Bankruptcy Law and Practice: 10.2.3.4.5.5 No cap if homestead reasonably necessary for support

Section 522(q)(2) provides that the dollar limitation contained in section 522(q)(1) shall not apply to the extent that the amount of any interest in homestead property is reasonably necessary for the support of the debtor and any dependent of the debtor.291 This provision would permit the court to decline to apply the $189,050 cap on the debtor’s homestead interest that may be claimed as exempt based on a reasonably necessary test like that found in other subsections of section 522,292 and othe

Consumer Bankruptcy Law and Practice: 18.1 Introduction

Frequently, consumers have claims against businesses or individuals who file bankruptcy. Sometimes litigation by a consumer or a class of consumers may even motivate a retailer, service provider, finance company, or others to seek shelter in the bankruptcy system. Similarly, tenants may discover that their landlord has filed bankruptcy and services to their building have stopped. A consumer may also be a creditor in the bankruptcy of a separated or former spouse.1

Consumer Bankruptcy Law and Practice: 18.2.1 Preparing for the Debtor’s Voluntary Bankruptcy

When consumers have claims against persons or entities that are financially shaky, the possibility that the person or entity may file bankruptcy should be considered when pursuing claims and collection of the claims. In many instances, lawyers who have obtained large judgments against an abusive business or landlord find they have merely wasted their time or falsely raised their client’s hopes when the judgment debtor files for bankruptcy. The clients become unsecured creditors in a chapter 7 or 11 bankruptcy, and any distribution to them is nominal or nonexistent.

Consumer Bankruptcy Law and Practice: 18.8.2.1 Abandonment by a Chapter 7 Trustee

When the owner believes the building is no longer financially viable, a chapter 7 bankruptcy may be filed.872 If title to the building is in a corporation or other legal entity which the owner believes insulates them from personal liability, the bankruptcy will be in the name of the entity holding title and that entity will be the “debtor” in the bankruptcy proceeding.

Consumer Bankruptcy Law and Practice: 18.3.1 Overview

In pursuing claims on behalf of consumers, the consumer’s attorney must be aware that as soon as an entity has filed a bankruptcy petition, the consumer and the consumer’s attorney43 are subject to the far-reaching impact of the automatic stay.44 Virtually all legal proceedings against the debtor and other collection efforts must cease until relief is granted by the bankruptcy court.

Consumer Bankruptcy Law and Practice: 18.3.2 Relief from the Stay

In most instances the bankruptcy court must grant relief from the stay before any litigation or collection action against the debtor may be taken. Grounds for relief from stay are discussed in detail elsewhere in this treatise.52 This section addresses issues that are specifically applicable to consumers as creditors.

Consumer Bankruptcy Law and Practice: 18.3.3 The Automatic Stay and Domestic Relations Creditors

The 2005 amendments expanded the Code’s provisions exempting most domestic relations litigation from the scope of the automatic stay.83 Revised section 362(b)(2) excepts from the automatic stay the commencement or continuation of a civil proceeding to establish or modify child support, alimony, or maintenance.84 The exception applies to creditors’ actions on or after the date of the order for relief and applies to debts owed to or payable to a spouse, former spouse, child, or a governmental unit.

Consumer Bankruptcy Law and Practice: 18.8.3 Pursuing Opportunities for Tenant Ownership in a Chapter 7 Bankruptcy

Aside from ensuring that services to the rental property are maintained, the tenants may wish to consider what steps they can take to improve their long-term situation. With one absentee landlord in bankruptcy, the tenants may understandably be less than eager to see another absentee landlord buy the property out of foreclosure. If that is the case, tenant ownership strategies should be explored. Chances are, when a residential landlord files for bankruptcy, the rental property has been allowed to deteriorate for some time.

Consumer Bankruptcy Law and Practice: 18.8.5 Security Deposits

In addition to an interest in having services continue despite the initiation of bankruptcy proceedings, the tenants may have an interest in security deposits that the landlord obtained from the tenant at the commencement of the tenancy. As the assets of the estate are stretched to reach the claims of the landlord’s creditors, the status of the tenants’ security deposits may well become points of contention.

Consumer Bankruptcy Law and Practice: 18.9.2 Automatic Stay Issues for Consumer Borrowers

The automatic stay arising when a lender or servicer files a bankruptcy petition affects only legal proceedings against the lender or servicer; it does not stay legal proceedings in which the lender or servicer is plaintiff, such as mortgage foreclosures.1000 The consumer borrower is stayed from asserting counterclaims but may assert defenses, including affirmative defenses and recoupment claims up to the amount of the asserted debt.1001 Nothing in section 362 bars a consumer defendant from

Consumer Bankruptcy Law and Practice: 18.9.6 Third-Party and Successor Releases and Injunctions

Chapter 11 plans often include provisions in their fine print that attempt to enjoin creditors from pursuing claims against the debtor’s potential co-defendants in litigation. These third-party release and injunction provisions can leave consumers unable to pursue the otherwise useful strategy of “sidestepping” the lender’s bankruptcy by asserting claims against agents, successors, assignees, and other liable third parties.

Consumer Bankruptcy Law and Practice: 18.5.4.2.3 Effect of prior judicial determinations on nondischargeability

Findings of fact and conclusions of law from pre-bankruptcy judicial and administrative proceedings can provide a basis to collaterally estop the debtor from litigating many of the issues required to establish nondischargeability.343 Bankruptcy courts must frequently evaluate the degree to which a nonbankruptcy court’s findings in prebankruptcy litigation addressed an element of a nondischargeability exception, such as intent to deceive, willfulness, or the malice behind an action.344 For exampl

Consumer Bankruptcy Law and Practice: 18.5.4.3 Chapter 13

The 2005 amendments eliminated several of the advantages for debtors that the chapter 13 discharge formerly held over its chapter 7 counterpart. Debts incurred through fraud or false pretenses362 and debts arising from fraud as a fiduciary, embezzlement, or larceny363 are now nondischargeable in chapter 13. However, the creditor must still seek a formal determination of nondischargeability within sixty days after the first date set for meeting of creditors, or these debts will be discharged.